Summary of Key Points
Recently, hard-discount supermarkets have become a hot commodity in the retail industry: major players such as Hema, Meituan, and JD.com, as well as foreign and local competitors, are frantically opening stores in a fierce market competition. Unlike the "soft discounts" that used to sell near-expiry goods, these new stores achieve "daily low prices" by reducing costs through their supply chains (e.g., direct procurement from suppliers, self-operated products, and cashless checkout systems). They target the "mid-class with limited income"—people who want to save money without compromising on quality (such as middle-aged individuals with fixed salaries or relying on pensions in retirement, or young people who are frugal in daily life but willing to spend on discretionary items). This trend reflects changes in the economic environment and consumer behavior: people are less confident about their future income and are more cautious with their spending. The success of hard-discount supermarkets depends on which company can effectively manage its supply chain, but they will only represent one aspect of the increasingly segmented retail market and not replace all other retail formats.
I. Hard-Discount Supermarkets: Not Just "Last-Minute Sales," but a New Approach to Lower Prices
Many people might think that hard discounts are just about selling near-expiry food, but that's not the case. Previous initiatives like Good Deal and Hi Deal were examples of "soft discounts," which relied on purchasing surplus or expired goods from suppliers at lower prices, though the supply was often unreliable. Hard discounts, on the other hand, focus on truly reducing costs:
- Location Choices to Save Rent: Stores are located in community areas rather than shopping malls (for example, most hard-discount stores in Beijing are found in suburban regions).
- Increased Self-Operated Products: Supermarkets produce their own products directly from factories (known as PB goods), eliminating middleman markups. For instance, Hema offers its own strawberry cakes, and Aldi sells its own milk.
- Reduced Labor Costs: Cashless checkout systems are standard, and fewer employees mean lower labor costs.
- Focused Product Selection: Only the most frequently purchased items (such as fresh produce and groceries) are sold to minimize inventory losses.
In short, hard discounts aim to cut costs at every stage of the supply chain, allowing them to maintain low prices daily (a concept known in the industry as EDLP, or Everyday Low Prices). For example, a 4-kilogram watermelon at Hema in Beijing can cost just 19.99 yuan—half the price compared to markets.
II. Why Have Hard-Discount Supermarkets Suddenly Become Popular? Who Is Buying into This Trend?
The popularity of hard discounts is not accidental; it reflects current societal needs:
- Economic and Psychological Factors: People are less optimistic about their future income (e.g., concerns about job displacement by AI or salary stagnation), so they want to save on daily expenses without settling for lower-quality products.
- Target Audience: The main customers are those with limited middle-class incomes:
- Middle-aged individuals whose salaries are not increasing and who rely on pensions in retirement, seeking affordable yet decent options for food and clothing.
- Young people who are willing to spend on discretionary items like concerts and travel but are frugal with basic necessities.
- Learning from European and Japanese Models: Countries like Europe (Aldi) and Japan have long had hard-discount models due to aging populations and slow economic growth, leading to a desire for lower daily expenses. China is now reaching this stage as well.
III. The Fierce Competition Among Major Players
The hard-discount market is highly competitive, with each company adopting different strategies:
- Hema: Has the largest number of stores (over 400) and accounts for 60% of its products through self-operation, but it needs to differentiate from its premium brand Hema Fresh to avoid cannibalizing sales.
- Meituan (Happy Monkey): Lacks experience in managing supply chains and controlling inventory losses due to its focus on instant delivery services.
- JD.com (JD Discount Supermarket): Faces challenges in turning high-cost, large-store operations into profitable models.
- Foreign Player Aldi: Accounts for 90% of its products through self-operation, with a highly mature supply chain (long-term contracts with suppliers), but it is slow to expand, currently operating mainly in Shanghai and Jiangsu.
- Cross-Industry Players: Companies like Wanchen Group, which specializes in snacks, are entering the hard-discount market in hopes of finding new growth opportunities.
The competition has become intense, with stores opening within just 2 kilometers of each other, focusing on who can open more stores and offer the lowest prices.
IV. Are Low Prices Achieved through Subsidies or by Optimizing Supply Chains?
The low prices in hard-discount supermarkets are not the result of subsidies but rather efficient supply chain management:
- F2C (Factory to Consumer) Models: Direct purchases from farms and factories eliminate middlemen, reducing costs.
- Self-Operated Products as a Key: The more self-operated products there are, the lower the overall costs. Aldi’s 90% of products being self-operated allows it to offer extreme low prices; Hema’s 60% is also impressive, while Meituan only has 25% and needs to improve.
- Innovation and Digitalization: Creative marketing (e.g., popular strawberry cakes) and digital tools for predicting sales and reducing inventory waste are crucial for cost reduction.
While short-term subsidies may attract new customers, long-term success depends on a strong supply chain.
V. Does Hard-Discounting Have a Future? It's Not the Dominant Trend, but Just One Part of the Market Segmentation
Hard-discount supermarkets do have potential, but they won't replace all other retail formats:
- Success Stories from Previous Models: Companies like Aldi in Germany and Japanese specialty supermarkets have thrived during economic downturns.
- Niche Market Positioning: Hard discounts mainly sell fresh food, which limits their market impact. For example, Japanese specialty supermarkets may not rank among the top ten retailers overall, but they perform well in the fresh-food category.
- Segmented Retail Trends: The retail industry will become more diverse, with both premium and cost-effective options available. Each consumer group will find its preferred format.
In summary, hard-discount supermarkets are not the solution to save the entire retail sector, but they represent an important option for consumers looking to save money without sacrificing quality of life. Those who can master supply chain management will emerge as winners in this competitive market.